B&N Spins Off Nook & B&N College – MS To Invest $300 Million (a Deeper Look)
It looks like B&N found that investor that they’ve been looking for; today they announced that the Nook unit would be combined with B&N college to form a new sub worth about $1.7 billion. Microsoft is investing $300,000,000 and taking a one sixth or so share in the new company. The spinoff will control the Nook development, but B&N will continue to sell it. There will also be a new Windows 8 app.
My first thought was to wonder why did no one want to invest? But there’s more to the story.
This story actually has multiple layers to it that go far beyond the basic news. There are also a number of corollaries which both complicate and make this much more interesting. For example, a little over a month ago one senior Microsoft manager said that Windows 8 would show up on ereaders. I didn’t think much of the story at the time, but clearly that was a foreshadow of today’s news.
And if you’re thinking that someone should have connected the dots, well, B&N and Microsoft were in the middle of a patent dispute back then. Would you have expected companies fighting in the courtroom to settle this amicably? I didn’t. This new spinoff does settle the lawsuit (that is a detail mentioned in the press release below).
I suppose some one will tell me it’s not unusual to settle a lawsuit this way, but this one is still odd. Microsoft has been a patent troll (towards Android, at least) for some years now. They’ve been extorting money out of Android device makers since late 2010, in fact. Patent trolls got their name because they don’t actually innovate on their patents; they sue. Watching Microsoft switch from troll to investor was a surprise.
One might also argue that Microsoft’s first step in this direction was when they threw in the towel on MSReader, their ebook platform, back in August of 2011. But that would be a bit of a stretch.
I was also surprised to learn that B&N College, which operates some 600 college bookstores, was included in the deal. B&N College is a retail operation. While it does sell the Nook it doesn’t do any real research or development of new products or tech. This makes me wonder both what the new spinoff will be focused on and when exactly was B&N College was added to the deal. I suspect that this happened only after iBooks Author got so much favorable press. If so, it was a foolish move. iBooks Author is more hype than substance. Yes, it’s a nice tool, but the hardware costs are absurd.
On a related note, do you suppose this is a sign that Microsoft plans to let their relationship with Blio cool? MS was one of the early supporters of Blio, so much so that the first public demos of the platform were held at CES 2010 in the MS booth behind closed doors. Okay, that’s not really public but you get my point.
And finally, I wouldn’t read too much into the details about the new Windows 8 app. B&N would have released one anyway. It’s Windows, for crying out loud. They kinda have to release an app. But if you combine it with the hints from last month it raises the possibility that the next Nook could run on Windows 8. That’s possible, but it will likely be as closed as the current Nooks.
All in all, an interesting morning.
Barnes & Noble Inc. (NYSE: BKS) and Microsoft (NASDAQ: MSFT) today announced the formation of a strategic partnership in a new Barnes & Noble subsidiary, which will build upon the history of strong innovation in digital reading technologies from both companies. The partnership will accelerate the transition to e-reading, which is revolutionizing the way people consume, create, share and enjoy digital content.
The new subsidiary, referred to in this release as Newco, will bring together the digital and College businesses of Barnes & Noble. Microsoft will make a $300 million investment in Newco at a post-money valuation of $1.7 billion in exchange for an approximately 17.6% equity stake. Barnes & Noble will own approximately 82.4% of the new subsidiary, which will have an ongoing relationship with the company’s retail stores. Barnes & Noble has not yet decided on the name of Newco.
One of the first benefits for customers will be a NOOK application for Windows 8, which will extend the reach of Barnes & Noble’s digital bookstore by providing one of the world’s largest digital catalogues of e-Books, magazines and newspapers to hundreds of millions of Windows customers in the U.S. and internationally.
The inclusion of Barnes & Noble’s College business is an important component of Newco’s strategic vision. Through the newly formed Newco, Barnes & Noble’s industry leading NOOK Study software will provide students and educators the preeminent technology platform for the distribution and management of digital education materials in the market.
“The formation of Newco and our relationship with Microsoft are important parts of our strategy to capitalize on the rapid growth of the NOOK business, and to solidify our position as a leader in the exploding market for digital content in the consumer and education segments,” said William Lynch, CEO of Barnes & Noble. “Microsoft’s investment in Newco, and our exciting collaboration to bring world-class digital reading technologies and content to the Windows platform and its hundreds of millions of users, will allow us to significantly expand the business.”
“The shift to digital is putting the world’s libraries and newsstands in the palm of every person’s hand, and is the beginning of a journey that will impact how people read, interact with, and enjoy new forms of content,” said Andy Lees, President at Microsoft. “Our complementary assets will accelerate e-reading innovation across a broad range of Windows devices, enabling people to not just read stories, but to be part of them. We’re at the cusp of a revolution in reading.”
Barnes & Noble and Microsoft have settled their patent litigation, and moving forward, Barnes & Noble and Newco will have a royalty-bearing license under Microsoft’s patents for its NOOK eReader and Tablet products. This paves the way for both companies to collaborate and reach a broader set of customers.
On January 5, Barnes & Noble announced that it was exploring the strategic separation of its digital business in order to maximize shareholder value. Barnes & Noble is actively engaged in the formation of Newco, which will include Barnes & Noble’s digital and College businesses. The company intends to explore all alternatives for how a strategic separation of Newco may occur. There can be no assurance that the review will result in a strategic separation or the creation of a stand-alone public company, and there is no set timetable for this review. Barnes & Noble does not intend to comment further regarding the review unless and until a decision is made.